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Lincoln Industries has a line of credit at Bank Two that requires it to pay 11% interest on its borrowing and to maintain a compensating balance equal to 15% of the amount borrowed. The firm has borrowed $800,000 during the year under the agreement. Calculate the effective annual rate on the firm’s borrowing in each of the following circumstances:

a. The firm normally maintains no deposit balances at Bank Two.

b. The firm normally maintains $70,000 in deposit balances at Bank Two.

c. The firm normally maintains $150,000 in deposit balances at Bank Two.

d. Compare, contrast, and discuss your findings in parts a, b, and c.

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Category:- Basic Finance
Reference No.:- M91867017

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